Woodside juggles Scarborough selldown amid volatile oil markets after Russia’s Ukraine invasion

The energy producer’s first-quarter revenues fell as it cut trading activity, noting ‘unprecedented volatility’ due to the Russian invasion of Ukraine.

The producer, led by Meg O’Neill, said it put a lid on trading activity due to the volatile global energy market Picture: NCA NewsWire

Woodside Petroleum said it is fielding strong investor interest in picking up a stake in its giant Scarborough gas project as it juggles volatile gas market conditions which saw it cut trading activity in the first quarter following Russia’s invasion of Ukraine.

The West Australian producer plans to offload 50 per cent of the upstream component of the offshore Scarborough field with its decision last year to give the go-ahead for the project without a selldown worrying some investors even as it sold a 49 per cent stake in the connected Pluto LNG venture.

However, chief executive Meg O’Neill said it was now fielding strong interest in Scarborough along with a sale of its Sangomar oil project in Senegal amid a backdrop of tight global gas markets and a realisation by investors of strong demand over the medium term.

“We do intend to sell down our equity position in Scarborough as well as sell down our equity in Sangomar,” Ms O’Neill told The Australian. “Those processes are continuing and we’re visiting with a number of potential partners on both of those opportunities now.”

The West Australian producer said it put a lid on trading activity due to the volatile global energy market which saw its first quarter revenues dive 17 per cent to $US2.3bn from $US2.9bn for the last three months of 2021. The result was sharply lower than a $US3.2bn forecast from RBC.

While Woodside’s average realised oil price in the first quarter rose to $US93 per barrel of oil equivalent, more than double the same period a year earlier, sales volumes fell by 19 per cent to 25.5 million boe, from 31.8 million boe in the prior quarter. RBC had forecast sales volume of 31.1 million boe for the first quarter.

The Woodside chief said the company was mindful of needing to avoid inadvertently buying Russian LNG on the spot market and then selling that on to buyers given there can be issues identifying where an LNG cargo originates.

“Look, there was just a lot going on in the quarter,” Ms O’Neill said. “Obviously with Russia’s invasion of Ukraine. One of the key questions was where LNG was sourced and we probably did retreat a little bit just to make sure we didn’t somehow get into a trade chain that involves Russian LNG. So it was, in many ways a bit more of a constrained market than it would have been in say, the fourth quarter of 2021.”

Brent oil jumped to 14-year highs in March and has remained above $US100 a barrel while spot LNG prices jumped to the equivalent of $US500 a barrel – previously described as “off the charts” by Woodside – as Russian volumes face being sidelined.

Sanctions and restrictions on Russia, the world’s fourth largest LNG producer and supplier of 40 per cent of Europe’s gas, have created a global hunt among buyers to secure supplies.

“The implications of Russia’s invasion of Ukraine have reverberated globally, exacerbating already tight energy markets, particularly for LNG. This has resulted in unprecedented volatility and price spikes to levels not seen since the early part of last decade,” Ms O’Neill said.

“We expect in the second quarter to see the continued benefit of stronger pricing, reflecting the oil price lag in many of our LNG contracts,” Ms O’Neill said.

Woodside, which expects to complete its merger with BHP Petroleum on June 1, said production fell 1 per cent to 22.3 million boe compared with an RBC forecast of 23.3 million boe.

Analysts had forecast the frenzy among buyers to grab gas volumes could lead to hugely lucrative shipments by Australia’s top LNG exporters with a single cargo topping $US100m and potentially doubling that if prices keep rising.

Woodside shares fell 4.6 per cent to $30.60.

Originally published as Woodside juggles Scarborough selldown amid volatile oil markets after Russia’s Ukraine invasion